CARPE DIEM
Professor Mark J. Perry's Blog for Economics and Finance
Friday, September 25, 2009
About Me
- Name: Mark J. Perry
- Location: Washington, D.C., United States
Dr. Mark J. Perry is a professor of economics and finance in the School of Management at the Flint campus of the University of Michigan. Perry holds two graduate degrees in economics (M.A. and Ph.D.) from George Mason University near Washington, D.C. In addition, he holds an MBA degree in finance from the Curtis L. Carlson School of Management at the University of Minnesota. In addition to a faculty appointment at the University of Michigan-Flint, Perry is also a visiting scholar at The American Enterprise Institute in Washington, D.C.
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12 Comments:
The only "key indicators" in this group are inflation and the unemployment rate. Everything else are PRICES which are redundant measures of inflation.
I've got news for you: the unemployment rate isn't finished going up yet.
Excellent analysis. Professor Perry's main point in his article is that the economy is not nearly as bad as most in the media make it out to be, Gramen.
ahhh, but he leaves out several salient points:
CPI is not directly comparable. it's calculation methodology has changed multiple times since 1980, most notably under clinton. using a 1980 calculation, inflation is running several points higher.
the unemployment calculation has altered a great deal as well. consistently using a broader measure (like BLS's U6) unemployment is worse now than in 1980.
doing this analysis while leaving out consumer and national debt loads makes for a very incomplete analysis.
this debt will make for a much more anemic recovery.
sorry, realized something was unclear - by saying inflation is running several points higher now, i mean than reported, not than during 1980.
This is not "excellent analysis". It's not even "analysis".
Four of there variables are funtions of the same thing: inflation.
Where is the "analysis" of job losses? Our economy has lost 4.26% of nonfarm employment, peak to current, in this recession. Peak to trough in 1980, we lost less than 1%. In the 1982 second dip we lost almost 3% of nonfarm jobs, still far short of this recession and we're not done yet losing jobs.
Rank amateur reporting. Calculated Risk blog does real analysis. They're talking about housing turnover, shadow inventory, flattening home sales, falling durable goods orders and unfilled orders. They call it like they see it, not how they want to see it.
In the Enterprise Blog, Perry says gas real gas prices were 32 percent more expensive than today. There he goes again using a price of a single good as an "economic indicator". How about using corn prices? Did he forget real gas prices hit a record high last July? Are current gas prices not "high" by historical standards?
Oval,
Talk about being a rank amateur...wrong you are on both counts. According to InflationData.com, here are corn prices adjusted for inflation (check out early '70's thru 1997):
Today: $3.33 (according to Bloomberg)
2008 $7.35
2007 $5.53
2006 $4.02
2005 $2.40
2004 $2.60
2003 $2.61
2002 $3.14
2001 $2.68
2000 $2.25
1999 $2.80
1998 $2.76
1997 $3.58
1996 $5.06
1995 $4.05
1994 $3.22
1993 $3.76
1992 $3.40
1991 $3.99
1990 $4.17
1989 $4.04
1988 $5.31
1987 $3.00
1986 $3.21
1985 $4.66
1984 $6.22
1983 $7.71
1982 $5.22
1981 $7.37
1980 $8.98
1979 $8.36
1978 $7.26
1977 $6.76
1976 $10.64
1975 $12.57
1974 $15.67
1973 $14.41
And here are gas prices adjusted for inflation (check out 1981):
Today: $2.52 (according to AAA)
2008 $3.22
1998 $1.35
1981 $3.20
1976 $2.27
1969 $2.06
What do you mean, "wrong on both counts"?
I wasn't suggesting corn prices as an economic indicator, you dope. I was pointing out the folly of using individual commodity price as a gauge of economic health.
Mortgage rates, car loan rates, gas prices, corn prices... They are all just PRICES. These prices are determined by the market for the products and services. They are not "key indicators" of anything. And as was pointed out, inflation rate factors into all interest rates, so they pretty much measure the same thing.
And what does your Googling reveal about my gas price statement? I said real gas prices reached a record high last year and are still high by historical standards today. Thanks for providing the data to prove what I said is correct.
But again, gas prices are not any kind of "key indicator" of the economy. Last time I checked, NBER doesn't look at gas prices as any kind of indicator for their business cycle dating.
But they DO look at durable goods orders which just FELL. I wonder why the chart doesn't include that.
Recessions and expansions are a function of 5 variables (which are nowhere to be seen in CD's analysis):
1. Real output (GDP)
2. Nonfarm payroll employment
3. Industrial production
4. Real retail-wholesale sales
5. Real personal income less government transfers.
For instance, nonfarm payrolls have declined by 5% in this recession (and are likely to further decline) but only declined by 3.1% in the 1981 recession.
By these variables, the 2007 recession is deeper and longer than the 1981 recession; the current episode was the worst post-WW11 economy and the incipient recovery will be so tepid that Joe6Pack won't even notice it.
That's absolutely right anonsquared.
Real GDP growth will likely be positive in the third quarter only because of increased government spending.
Employment growth is negative and showing no signs of slowing the fall.
Real Personal Income is flat.
Industial production is up, but it will likely turn down in the coming months.
Ditto for retail sales.
So three measures are up with two temporary and one sustained by government.
Two measures are down and one is flat.
Hence there is no recovery yet.
Having anemic capacity utilization and capacity oozing from nearly every economic pore when interest rates are at all-time lows is not better - it is worse. It means they now is substantially worse.
In the 1980's, mortgage rates and car loan rates were over 15%. The high rates of the past will suffocate consumption and business investment. Today, mortgages are 5% for 30 years and cars can be financed with 0% specials. Now throw in government stimulus that approaches 13% GDP and we are still doing worse than the 80's.
This downturn has achieved less growth with better rates and massive, massive, massive government stimulus.
I think Prof. Perry is pointing out that money is easily avilable now as compared to the early 80's. Econbrowser's James Hamilton has a graph that shows the destruction to GDP that this "recession" has done as compared to the early 1980s.
Prof. Perry shows us that investment can launch the U.S. economy in a big way -- acccessing new markets will be the key.
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